Dive Brief:

• Stem Disintermedia, a distribution and payments platform for musicians and music labels, announced Monday it has raised $20 million in funding, led by venture capital firm QED Investors and digital payments company Block, according to a news release. The new funding brings the startup’s total to about $40 million.
• Los Angeles-based Stem’s platform allows independent artists and their teams to track revenues, access capital, manage splits with collaborators and automate payments. The company, which launched in 2016, has disbursed about $200 million to 40,000 people as of 2021.
• In the music business, collaborators typically might not see payment for several months, "and you get a paper statement that’s really hard to make sense of," said Stem CEO and cofounder Milana Lewis. Stem’s financial dashboard is refreshed monthly and payouts happen on the 15th of every month.

Dive Insight:

Stem aims to make the business side of the music industry simpler for artists and labels by helping them track and manage payments for parties involved in the creative process, especially as the independent segment grows within the industry.

The making of a song can involve producers, songwriters, vocalists and promotional partners, all of whom need to be paid, and Stem enables earnings to be split among these stakeholders.

Stem is unique in that it combines the work of music distribution with royalty accounting services, or the calculations of who gets paid based on the contracts of song collaborators, Lewis said. Stem aims to provide "a more clear and fair music industry," she said. The company charges a transaction fee for providing the services of distribution and split payouts that ranges from 5% to 10%.

With the investment, QED Partner Frank Rotman joins Stem’s board of directors, which also includes Michael Vaughan, a former chief operating officer at Venmo. Lewis would not share the company’s most recent valuation. She said Stem is an early-stage company and has no plans to go public this year.

Block, led by Twitter cofounder and fintech entrepreneur Jack Dorsey, was a new investor for Stem in this funding round, but it’s not the company's first move in the music industry. Block, formerly Square, purchased Jay-Z’s music streaming platform Tidal in 2021 for $297 million.

Stem has deals with major services where music is consumed, like Apple, Spotify, Amazon, Tidal, Peloton, TikTok and others, and labels or artists use Stem to get their music onto those platforms. When music is streamed, those platforms pay Stem, which in turn pays all of the shareholders involved in making a song or record. 

In August 2021, Stem introduced a tool that tracks and recoups expenses before splits are paid out. The infusion of capital announced Monday will help fuel more growth for Stem, which aims to bring its payment tools to a broader sector of the music industry, Lewis said. 

Currently, only those using Stem for music distribution can access the financial tools the company offers. With the capital raised, the company will work to make its financial tools "distribution agnostic" over the next 18 months, Lewis said, meaning any creators can use Stem to manage payouts and report to their collaborators, regardless of who they use to distribute their music.

Stem also has a feature that gives those getting paid through it access to capital that can be used for business or personal purposes, similar to loan offerings from Stripe and Square, Lewis said. With these advances, Stem charges a fee on the financing that ranges from 5% to 25%; the fee is based on the length of time to repay and other terms.

Revenue in the music business is projected to reach $131 billion by 2030, Business Insider has reported.

The advent of music streaming and numerous platforms, as well as the explosion of the creator economy, have fueled a demand for better tools to handle these accounting processes, Lewis said. "Aggregating and simplifying all of this has become really complex, to the point where people are not getting paid," she said.

Fintech tools have targeted areas of the gig economy, and small businesses have platforms that give entrepreneurs greater visibility into their business, but the music industry "has been overlooked," creating an opportunity for Stem, Lewis said.